Chapter 3 Problems

1. A country can have a comparative advantage in the production of a good, even if it does
not have an absolute advantage in the production of that good.

TRUE FALSE

2. An economy can produce at any point on or inside its production possibilities frontier,
but it cannot produce at points outside its production possibilities frontier.

TRUE FALSE

3. A production possibilities frontier is bowed outward when:

A. the more resources the economy uses to produce one good, the fewer resources it
has available to produce the other good.

B. an economy is self-sufficient instead of interdependent and engaged in trade.

C. the rate of trade-off between the two goods being produced is constant.

D. the rate of trade-off between the two goods being produced depends on how much
of each good is being produced.

4. Charlotte can produce pork and beans and can switch between producing them at a
constant rate. If it takes her 10 hours to produce a pound of pork and 5 hours to produce a pound
of beans, what is her opportunity cost of pork? Note: The opportunity cost is typically stated in
terms of the other good; in this case, beans.

1/10: 1/5

1:2

2 pounds of beans

5. Consider two individuals, Marquis and Serena each of whom would like to wear sweaters
and eat tasty food. The gains from trade between Marquis and Serena are most obvious in which
of the following cases?

A. Marquis is very good at knitting sweaters and at cooking tasty food, but Serena’s
skills in both of these activities are very poor.
 B. Marquis and Serena both are very good at cooking tasty food, but neither has the
necessary skills to knit a sweater.

C. Marquis’s cooking and knitting skills are very poor, and Serena’s cooking and
knitting skills are also very poor.

D. Marquis’s skills are such that he can produce only sweaters, and Serena’s skills
are such that she can produce only tasty food.

6. Economists use the term comparative advantage to refer to the ability to produce a good
at a lower opportunity cost than another producer.

7. Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity
cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one apple pie
is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream.

A:I Ellie - I
1:0.5

A:I Brendan - A
1:0.25

TRUE FALSE

8. Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity
cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one apple pie
is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie
for 1/3 gallon of ice cream.

TRUE FALSE

9. For a country producing two goods, the opportunity cost of one good will be the inverse
of the opportunity cost of the other good.

TRUE FALSE

10. For both parties to gain from trade, the price at which they trade must lie between the two
opportunity costs.
 TRUE FALSE

11. Frank can make 20 hot dogs an hour or 10 pints of potato salad an hour. Earnest can
make 30 hot dogs an hour or 20 pints of potato salad an hour. Who has the comparative
advantage making hot dogs and who has the comparative advantage making potato salad?

H:P – Frank - H

1:1/2 or 0.5

H:P – Earnest - P

1:2/3 or 0.67

12. If a country has a higher opportunity cost to produce a good, that means that this country
can never possess a comparative advantage in the production of any good.

TRUE FALSE